"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Thursday, June 30, 2011

Dumb or Desperate? Copper Up, Moly Drops Below $15



Þūnresdæg
Morning Miners!

It is 6:01 AM. Have a cup of Thor's Day Thunder Dunder. I called our favorite Norseman dunder-headed for fixing the coffee double-strong this morning; maybe he's smarter than I think...

Dumb or Desperate?


We may need strong coffee next week. After a welcome Fourth of July hoo-rah, the short market week starts with no more Federal Reserve quantitative easing (QE-2 ends today) and faces the dreaded monthly labor report on Friday. Today marks the end-of-the-quarter and there appears to be a sentiment to close the books up after a horrifying May and June for the poor Metals & Miners. Let's join the party for now.

On Monday, we added "the Dumb" to this Report's "The Good, the Bad and the Ugly" market outlook. The ole Colonel called the International Energy Agency (IEA) plan to lower oil prices, by dropping 60 million barrels of oil on the market, dumb:

My complaint is that such ham-fisted interventions usually trigger the Law of Unintended Consequences. In a normally functioning marketplace, supply and demand trumps frivolous speculation over time. Governments or international agencies trying to save the world in a hurry often forget basic market physics and here we are...I'll bet oil prices head back towards mid-$90/bbl pasture before long and it might be a good time to buy some precious metals on the cheap (Eureka Miner, 6/23/2011)

Pardner, "before long" got here in a hurry. This morning Nymex oil is trading at $94.86/bbl (see Daily Oil Watch below). Here is how oil, gold & copper reacted to the IEA plan:

6/22 closing markets prior to the IEA announcement

NYMEX oil $95.41/bbl
COMEX gold $1,553.4/oz
COMEX copper $4.1070/lb

6/23 Intraday lows after the IEA announcement

NYMEX oil $89.61/bbl on 6/27 down 6.1%
COMEX gold $1,490.8/oz on 6/27 down 4.0%
COMEX copper $4.034/lb on 6/23 down 1.8%

6/30 Thursday morning prices

NYMEX oil $94.86/bbl
COMEX gold $1,511.2/oz
COMEX copper $4.2470/lb

I threw a little glitter in the buckboard when gold went sub-$1500/oz. Doug Kass of Seabreeze Partners had a different take; maybe the move move wasn't dumb but desperate:

“When I looked at the SPR [Strategic Petroleum Reserve] release and listened to Bernanke's press conference I got a sense of panic from the policy makers...We're entering an uncertain and scary market." (Doug Kass, CNBC Business News, 6/23/2011)

I respect both Mr. Kass and "Commodity King" Dennis Gartman - both have cited globally declining PMIs as a troubling sign for markets going forward. Gartman warns of $3.50/lb copper levels ahead; today we're nearly back to $4.25/lb. Not too many folks have gotten rich betting against these two market veterans, pardner. Stay tuned.

Molybdenum Watch: Copper Up, Moly Drops Below $15

This Monday the Report put molybdenum on price watch as western spot prices dropped to the low-$15 level; yesterday they fell to $14.88/lb. Here is the latest 3-month chart:


On June 15th, the ole Colonel had a hunch that moly pricing was setting up for the downside. We reported a subtle shift in molybdenum markets when Western moly oxide on the spot market found itself above the London Metal Exchange (LME) 3-month seller's contract in price. Although the difference was small this so-called "backwardation" was a condition we have not seen for some time. Spot prices typically trade below future price expectations or in "contango" with the futures contracts. Unfortunately, my hunch proved true.

Here is yesterday's lineup:

Western moly oxide $14.88/lb
European Moly Oxide $15.10/lb
LME cash seller $15.10/lb
LME 3-month seller $15.10

If we now have a molybdenum canary in the global recovery mineshaft, she is not feeling well.

By contrast, our old trusty red metal canary is finding new sunlight in the shaft. London Metal Exchange (LME) inventories have resumed a downward trend, a potentially bullish sign for copper:


This morning LME copper is at an 8-week high; nickel posts a 1-month high and zinc is at levels not seen for two months. Is this just end-of-the-quarter shenanigans and the moly bird is telling us the real story? I'm afraid the ole Colonel is in the Kass-Gartman camp for now.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 283.21, up from yesterday's 228.11 and above the 1-month moving average of 230.42 for the first time in a long time! The EMI is down from the high of January 4th and set a new 2011 low on June 270th at 180.03. However, the 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 79.00, down from yesterday's 80.14 and below its 1-month average of 80.05. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,598.4/oz or $87.2/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $94.86
ICE North Sea Brent crude $112.33
Spread (ICE- NYMEX) = $17.47 (Yesterday, $16.28)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $95.99
ICE North Sea Brent crude $1112.34
Spread (ICE- NYMEX) = $16.35 (Yesterday, $15.47)

* NYMEX futures contracts have rolled forward, we now show August & October for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are still on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is slightly above its 200-day moving average of $51.78 (our new warning level, 06/29 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve phases out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as more investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.09 in early trading at $94.86 (August contract, most active); Gold is up $0.8 to $1511.2 (August contract, most active); Silver is up $0.306 to $35.075 (September contract, most active); Copper is up $0.0230 at $4.2470 (September contract, most active)

Western Molybdenum Oxide is $14.88; European Molybdenum Oxide is $15.10; LME cash seller is $15.10, LME moly 3-month seller's contract is $15.10

Stock Market Morning Update

The DOW is up 93.51 points to 12,354.55; the S&P 500 is up 8.55 at 1,315.96

Miners are mixed:

Barrick (ABX) $45.09 up 0.02%
Newmont (NEM) $53.62 up 0.19%
US Gold (UXG) $5.95 down 1.49%
General Moly (Eureka Moly, LLC) (GMO) $4.32 down 0.92%
Thompson Creek (TC) $9.84 up 1.23%
Freeport-McMoRan (FCX) $52.27 up 1.28% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.80 up 0.56%

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $34.38 up 0.44% - global steel producer
POSCO (PKX) $108.22 up 0.81% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.05% at $1,664,365.61 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Monday, June 27, 2011

Gas & Gold Prices Down, What's Next?- Metals & Miners Weekly Roundup


Morning Miners!

It is 5:29 AM. Have a cup of Summer Sunshine! The Report will go off the air for two-days but will be back bright and early Thursday, 6/30/2011. Let's see what's up (and down) this morning...

The Colonel's Metals & Miners Outlook

As we said in last Monday's roundup, the months of May and June have been rough on the metals & miners (The Good, the Bad and the Ugly). This Report's Eureka Miner's Index (EMI) plumbed a new low for 2011 a week ago and descended further today. This is not good news, pardner - this is the ninth new low since early May. The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County (see EMI discussion below).

Falling Fuel Prices

On the bright side, fuel prices continue to fall at the pump. You can monitor the latest Nevada fuel prices in the Daily Oil Watch below. This morning the average price of regular gasoline for Nevadans at the pump is $3.582/gal; the national average is slightly lower at $3.580/gal. Here is a 1-month chart of average Nevada gas prices:



Here are the latest reported lows and highs in the state for regular gasoline:

$3.29/gal
Rebel
3051 E Bonanza Rd & N Mojave Rd, Las Vegas – East

$4.29/gal
Shell
1237 6th St near US Hwy 93, Wells

Since fuel prices are an important cost element for mining, lower costs are good for miners, but...

Falling Oil & Gold Prices

Last week we talked about the good, the bad and the ugly. Let's add "the dumb" today. With lowered expectations for domestic and global growth, commodity prices have been declining - unfortunately that wasn't good enough for the International Energy Agency. Last week they decided, with U.S. concurrence as a member, to dump 60 million barrels of oil on international markets over the next month. The U.S. contribution will be half of the total or 30 million barrels taken from our strategic petroleum reserve. This is not even a single day of global consumption demand! The latest IEA 2011 consumption rate estimate is 89.3 million barrels per day.

This action is designed to lower oil prices further by shaking long-side speculators from the futures markets. The announcement did drop futures prices last Thursday to the low-$90s and this morning NYMEX crude is trading at $90.01/bbl. Brent crude (the European benchmark) also dropped, presently trading at $104.00/bbl and the spread between NYMEX and Brent has come down sharply to $14 compared to mid-$20 just days ago (see Daily Oil Watch below). So the action did create pressure on speculators holding long positions (those who bet that oil will continue to go up).

So what's so bad with that? For one thing, it is now suspected that word of the IEA move was leaked to short-sellers who no doubt made a ton of money in the oil futures market knowing beforehand that prices would drop. This matter is now under investigation. On the losing side, it is suspected that the folks stuck holding long positions liquidated safer assets such a gold and silver to cover their bets. The flight from "risky assets" spread to other commodities including metals. This morning COMEX copper teeters on the key-$4/lb level at $4.0475/lb and COMEX gold has dropped below $1,500/oz to trade at $1,498.2/oz. COMEX silver is down another 83-cents at $33.805/oz.

In fairness, one cannot blame the IEA for all the recent carnage in the metals complex but one also cannot ignore how interconnected all these commodities are. My complaint is that such ham-fisted interventions usually trigger the Law of Unintended Consequences. In a normally functioning marketplace, supply and demand trumps frivolous speculation over time. Governments or international agencies trying to save the world in a hurry often forget basic market physics and here we are.

I'll bet oil prices head back towards mid-$90/bbl pasture before long and it might be a good time to buy some precious metals on the cheap. However, base metals and molybdenum will probably continue to face further challenges with contracting global demand. This chart tells the story of Miss Moly's recent travails in Europe (see the weekly moly roundup below)...



Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 180.03 setting a new low for 2011, down from Friday's close at 190.44 and below the 1-month moving average of 242.68. The EMI continues to be down from the high set on January 4th and the 1-month moving average continues a troubling downtrend.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 82.15 up from Friday's close of 81.07 and above the 1-month moving average is 79.61. Gold is holding on to value even though dollar prices are in decline. Today's Value Adjusted Gold Price (VAGP) is $1,523.9/oz just $25.7 above the present gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value 0f 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Below is a chart of the GVI at Friday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):


Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a narrowing spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $90.01
ICE North Sea Brent crude $104.00
Spread (ICE- NYMEX) = $13.99 (Friday $15.23)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $91.17
ICE North Sea Brent crude $104.38
Spread (ICE- NYMEX) = $13.21 (Friday $14.72)

* NYMEX futures contracts have rolled forward, we now show August and October for a 2-month look-ahead

Prices are off their crisis highs but we still have $100 Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall although there is now downward price pressure. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with the latest downbeat economic news.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.3688(1-month) -0.3083 (3-month)
Cu/Au correlation +0.1687 (1-month) -0.4489 (3-month)
Cu/Oil correlation +0.4400 (1-month) +0.7458 (3-month)

Here are the numbers from our last roundup (6/20/2011):

Oil/Au correlation +0.1252(1-month) -0.2443 (3-month)
Cu/Au correlation +0.2624 (1-month) -0.5401 (3-month)
Cu/Oil correlation +0.4005 (1-month) +0.7313 (3-month)

We continue to have two negative correlations with recent movement in copper versus gold and oil versus gold from deep inversions (1- and 3-month correlations negative). Copper versus oil maintains a fairly tight positive correlation with 3-month data >0.7 as both have been trending down together. The metals & miners tend to do best when all correlations are positive.

According to my new June models (see bottom of blog page): oil is presently undervalued with respect to gold by -3.19-standard deviations and copper is undervalued by -0.99-standard deviations. Copper is presently overvalued with respect to oil by +0.513-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil last fall and has was initially in the green quadrant longer. Correlation data in this region is typically considered bullish. After a brief venture into the "-,+" quadrant, the return of oil vs gold to the "+,+" side was bullish but now with a drop into "+,-" quadrant the trajectory has turned bearish. The IEA caused an interesting jog in the trajectory (bullish); the movement of copper vs gold in the "+,-" quadrant was toward inversion territory (white arrow) but has turned away this morning (not shown).

Gold:Oil, Oil:Copper & Gold:Copper Ratios

The Report has been tracking the stability of the gold:oil, oil:copper & gold:copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios have diverged. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.". The mining sector remains on shaky ground.

Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair. The errors have been falling which suggested a return to greater stability but lately there are signs of divergence in Gold:Oil and Oil:Copper.

For the past 3-months we have these statistics given this mornings' numbers:

Gold:Oil ratio

mean 14.692 bbl/oz
variation > 3.0% limit at 7.33% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.73 lbs/bbl
variation > 3.0% limit at 4.48% (1-standard deviation/mean)

Gold:Copper ratio

mean 362.39 lbs/oz
variation > 3.0% limit at 4.66% (1-standard deviation/mean)

The composite Commodity Ratio Stability (CRS) is 5.639% (i.e the root-mean-square of the three variations above).

Weekly Molybdenum Roundup

Spot and futures prices for molybdenum oxide are now all below $16/lb territory with $15.18/lb spot out West and $15.25/lb in Europe. Western and Euro moly spot prices are in a mild contango with 3-month and 15-month London Metal Exchange (LME) seller contracts (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

The 3-month seller at $15.42/lb is now below the Colonel's mid-range moly price target for 2010 of $15.71/lb and way below my target of $20.21/lb for 2011. The Report will give moly prices a "orange" light on the Eureka Outlook Dashboard for this bearish development. I did believe we could see much higher prices this year although recent commodity reversals have put a large damper on that expectation.

Here is a detailed pricing summary for last week:

Western Moly Oxide $15.18/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $15.25/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $34,000/metric ton $15.42/lb

3-Month (Buyer) $33,000/metric ton $14.97/lb
3-Month (Seller) $34,000/metric ton $15.42/lb

15-Month (Buyer) $34,200/metric ton $15.51/lb
15-Month (Seller) $35,200/metric ton $15.97/lb

Here is a 1-year chart of the LME 3-month contract (seller), please ignore the data glitch at the far right hand portion of the LME chart:




Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a rough shape; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 200-day average of $51.08(our new warning level, 06/10 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The YELLOW light is turned back on for Investor Confidence as investors turn adverse to commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90/bbl

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $1.15 in early trading at $90.01 (August contract, most active); Gold is down $2.7 to $1498.2 (August contract, most active); Silver is down $0.883 to $33.805 (July contract, most active); Copper is down 0.0510 to $4.0470 (July contract, most active)

Western Molybdenum Oxide is $1518; European Molybdenum Oxide is $15.25; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.42

Stock Market Morning Update

The DOW is up 51.92 points to 11,986.50; the S&P 500 is up 3.80 at 1,272.25

Miners are down:

Barrick (ABX) $42.74 down 0.70%
Newmont (NEM) $51.94 down 0.63%
US Gold (UXG) $5.45 down 2.33%
General Moly (Eureka Moly, LLC) (GMO) $4.25 down 1.85%
Thompson Creek (TC) $9.40 down 0.95%
Freeport-McMoRan (FCX) $47.87 down 1.16% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.41 down 1.41%

The Steels are down (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $32.01 down 0.03% - global steel producer
POSCO (PKX) $104.04 down 0.01% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.95% at $1,587,896.23(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Friday, June 24, 2011

Gold Price Down, Gold Value Up; Moly Goes on Watch



Morning Miners!

It is 5:45 AM. Have a cup of Raine's delicious Red Label and be glad we're near the finish line. With all this week's market turbulence there are a few encouraging signs for gold, fewer for molybdenum...

Gold Price Down, Gold Value Up

Monday we noted that gold has dramatically gained value against some key commodities after an 11-month decline. This report's Gold Value Index (GVI) made a new high for the year on Monday and another yesterday. The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. In simple terms an ounce of gold now buys more barrels of oil, pounds of copper and ounces of silver than it did just several months ago (see below).

This morning COMEX gold is down about $20/oz from where it was this time Monday morning; $1,519.4/oz versus $1,539.2/oz. Although gold is down in price it has maintained relative value; a GVI of 81.7 versus 82.2.

An ounce of gold this morning buys...

26.4% more barrels of oil than on April 8th (2011 GVI oil high)
28.1% more pounds of copper than on February 7th (2011 GVI copper high)
37.3% more ounces of silver than on April 25th (2011 GVI silver high)

Falling dollar price, steady relative value with a valuation close to the new high for 2011; not all bad for our favorite precious metal.

What does it all mean? Miners like Barrick Gold should be happy that the cost of fuel in terms of their primary product is a lot cheaper than in early spring. This helps maintain profit margins even if gold dollar price falls further.

For copper and silver, we are seeing prices return to more normal levels with respect to gold. This report's Value Adjusted Gold Price (VAGP) is a computed price that supports current oil, copper & oil prices based on historical commodity norms. This morning the VAGP is $1,553.5/oz only $34.1/oz above COMEX gold at $1,519.4/oz. On April 11th this difference peaked at an amazing $344.7/oz.

The dramatic convergence of the VAGP and current gold price implies that metal prices inflated by monetary easing are showing signs of stabilization as Central Banks remove stimulus from the global economy. A good example is the Federal Reserve's decision to end the second phase of quantitative easing this month. Keep an eye on the GVI and VAGP; gold is still your friend and final arbitrator of price - it's been that way for more than 5,000 years!

Molybdenum Watch

This morning the Report is putting molybdenum on price watch as western spot prices dropped to the low-$15 level yesterday at $15.08/lb. Here is a 3-month chart:


Last Wednesday, the ole Colonel had a hunch that moly pricing was setting up for the downside. We reported a subtle shift in molybdenum markets when Western moly oxide on the spot market found itself above the London Metal Exchange (LME) 3-month seller's contract in price. Although the difference was small this so-called "backwardation" was a condition we have not seen for some time. Spot prices typically trade below future price expectations or in "contango" with the futures contracts.

Here is yesterday's lineup:

Western moly oxide $15.08/lb
European Moly Oxide $15.25/lb
LME cash seller $15.51/lb
LME 3-month seller $15.51

We are now below $16/lb across the board and more ominously the 3-month seller remains below my 2010 moly price taget of $15.71/lb. The orange light is turned ON for Miss Moly (see the Eureka Outlook Dashboard in the column to your right).


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 222.31, up from yesterday's 196.96 and below the 1-month moving average of 248.35. The EMI is down from the high of January 4th and set a new 2011 low on June 20th at 183.47. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 81.72, down from yesterday's 82.20 and above its 1-month average of 79.46. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,553.5/oz or just $34.1/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $91.33
ICE North Sea Brent crude $106.56
Spread (ICE- NYMEX) = $15.23 (Yesterday, $17.66)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $92.53
ICE North Sea Brent crude $108.8
Spread (ICE- NYMEX) = $14.72 (Yesterday, $16.27)

* NYMEX futures contracts have rolled forward, we now show August & October for a 2-month look-ahead

Prices are off their crisis highs but we still have $100+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall although there is now downward pressure on oil prices. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $51.44 (our new warning level, 06/20 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as more investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.31 in early trading at $91.33 (August contract, most active); Gold is down $1.1 to $1519.4 (August contract, most active); Silver is down $0.137 to $34.865 (July contract, most active); Copper is up $0.0840 at $4.1230 (July contract, most active)

Western Molybdenum Oxide is $15.08; European Molybdenum Oxide is $15.25; LME cash seller is $15.51, LME moly 3-month seller's contract is $15.51

Stock Market Morning Update

The DOW is down 42.31 points to 12,007.69; the S&P 500 is down 3.46 at 1,280.04

Miners are mixed:

Barrick (ABX) $43.76 down 0.52%
Newmont (NEM) $53.83 down 0.28%
US Gold (UXG) $5.86 down 0.34%
General Moly (Eureka Moly, LLC) (GMO) $4.37 up 1.39%
Thompson Creek (TC) $9.63 down 0.10%
Freeport-McMoRan (FCX) $49.18 up 0.49% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.79 up 0.97%

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $32.30 up 0.25% - global steel producer
POSCO (PKX) $105.05 up 3.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.52% at $1,630,300.09 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Thursday, June 23, 2011

S&P, Gold, Copper, Moly Down; Another Market ROLAIDS®


ROLAIDS® Spells Fast Relief!


Þūnresdæg
Morning Miners!

It is 5:57 AM. Have a cup of Summer Thunder. Our favorite Norseman is behaving like a bored kid on summer break. With no mischief in the skies, Thor is taking particular delight in break room discord and stormy markets.

S&P, Gold, Copper Down

I'm glad Ruby T is up in Elko today. She is our stalwart market bull in pitched battle with Old Miner Woden who warns constantly of darker days to come. Woden got a lot of support from Fed Chief Bernanke yesterday who talked down prospects for the domestic economy and provided no sign that the Federal Reserve would provide any additional monetary relief for now. The end of quantitative easing by the end of this month is a done deal.

I watched the COMEX copper futures and the S&P 500 both head south as Bernanke began speaking at 2:00 PM ET...down, down. The S&P dropped from an intraday high of 1,297.37 to close at 1,287.14; COMEX copper rolled from $4.092/lb to a lowly $4.028/lb in after-hours trading. So much for Wednesday morning's metals & miners rally.

COMEX gold took a hit too, presently down $28.2 to $1,525.2/oz; COMEX copper has recovered a tad but is still dangerously close to the key $4/lb level trading at $4.0440/lb. COMEX silver slumped with gold more than a buck to $35.580/oz. The broader markets are now open and the S&P 500 has fallen another 19.55 points to 1,267.59. It is unfair to blame all downside on Uncle Ben; Thursday morning opened with more weak jobs data, a surprise intervention in the oil markets and euro-zone worries that refuse to go away. The victim has been riskier assets.

Precious metals, which usually enjoy a safe haven lift on macro-worry days, are getting pounded by investor liquidations to cover riskier bets. Not a great environment for the metals and miners. Our trusty Eureka Miner's Index(EMI) has plunged back to sub-200 territory after briefly breaking above its 1-month moving average yesterday morning. The EMI is fortunately still above its 6/20/2011 low and low-side trend line (see below).

Miss Moly Stumbles Again

Last Wednesday, we reported a subtle shift in molybdenum pricing when Western moly oxide on the spot market found itself above the London Metal Exchange (LME) 3-month seller's contract in price. Although the difference was small this so-called "backwardation" was a condition we have not seen for some time. Spot prices typically trade below future price expectations or in "contango" with the futures contracts.

My hunch was that moly pricing may be setting up for the downside. On Tuesday, the report observed more deterioration in spot and futures pricing and yesterday was yet another step down the stairs.

Here is the latest lineup:

Western moly oxide $15.88/lb
European Moly Oxide $15.85/lb
LME cash seller $15.42/lb
LME 3-month seller $15.47

With moly spot prices still in backwardation and copper prices falling, I'm betting we'll see more downside. We are now below $16/lb and more ominously the 3-month seller is now below my 2010 moly price taget of $15.71/lb. Sorry folks, the ole Colonel is turning on the orange light for Miss Moly (see the Eureka Outlook Dashboard in the column to your right).

Another Market ROLAIDS®


Dennis Gartman, "Commodity King" and respected author of the Gartman Letter, was on CNBC Business News again forecasting trouble ahead for "Dr. Copper" and the base metals. For sometime, Gartman has advised buying gold in terms of the euro and pound sterling expecting more hard times ahead in Europe. Yesterday he added a clarion cry, "Buy gold, sell copper!"

Last Thursday this report reviewed Gartman's first suggestion which we implemented by buying gold and the U.S. Dollar Index last April. This is effectively a "soft short" on the euro and pound sterling since taken together these two currencies comprise 70.5% of the index. Here is an example of the technique with an update using the SPDR Gld Trust ETF GLD and the PowerShares DB US Dollar Index Bullish Fund UUP:

Last April:

4/21 buy 10 shares of GLD @$146.74 for $1,467.40
4/20 buy 69 shares of UUP @$21.32 for $1,471.08
Total investment = $2,938.48

At this morning's prices:

10 shares of GLD is valued at $1,486.00 ($148.60/sh.) for a $18.60 profit
69 shares of UUP is valued at $1,491.09 ($21.61/sh.) for a $20.01 profit
Total value = $2,977.09 with a profit of $38.61 or 1.31%

With even a $28 drop in gold prices today, this market ROLAIDS® remains above water with today's strengthening dollar. If precious metal liquidations ease and the euro heads into sub-$1.40 territory, this trade should do just fine.

What about another ROLAIDS® for our bumpy market ride? To follow Gartman's second suggestion, the ole Colonel put together another hypothetical trade with GLD and SMN (Proshares UltraShort Basic Materials ETF). Since SMN is a double-short we'll only buy half as much as our new investment in gold:

At this morning's prices:

Buy 20 shares of GLD valued at $2,972.00 ($148.60/sh.)
Buy 78 shares of SMN valued at $1,492.92 ($19.14/sh.)
Total investment = $4,464.92


That's your new ROLAIDS® for the day. We'll keep track of both trades as events in these turbulent markets develop. Always do your own research, pardner; double-leveraged shorts can be like carrying nitro in your buckboard.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 196.96, down from yesterday's 252.11 and below the 1-month moving average of 249.75. The EMI is down from the high of January 4th and set a new 2011 low on June 20th at 183.47. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 82.20, up from yesterday's 81.91 and above its 1-month average of 79.34 and setting a new high for 2011. Today's Value Adjusted Gold Price (VAGP) is $1,550.3/oz or just $25.1/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $91.44
ICE North Sea Brent crude $109.11
Spread (ICE- NYMEX) = $17.66 (Yesterday, $17.49)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $92.53
ICE North Sea Brent crude $108.8
Spread (ICE- NYMEX) = $16.27 (Yesterday, $16.83)

* NYMEX futures contracts have rolled forward, we now show August & October for a 2-month look-ahead

Prices are off their crisis highs but we still have $100+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall although there is now downward pressure on oil prices. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $51.44 (our new warning level, 06/20 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $3.97 in early trading at $91.44 (August contract, most active); Gold is down $28.2 to $1525.2 (August contract, most active); Silver is down $1.159 to $35.580 (July contract, most active); Copper is down $0.0440 at $4.0440 (July contract, most active)

Western Molybdenum Oxide is $15.88; European Molybdenum Oxide is $15.85; LME cash seller is $15.42, LME moly 3-month seller's contract is $15.47

Stock Market Morning Update

The DOW is down 184.40 points to 11,925.27; the S&P 500 is down 19.55 at 1,267.59

Miners are getting trashed:

Barrick (ABX) $43.68 down 2.41%
Newmont (NEM) $53.21 down 1.63%
US Gold (UXG) $5.65 down 4.72%
General Moly (Eureka Moly, LLC) (GMO) $4.19 down 3.01%
Thompson Creek (TC) $9.58 down 1.64%
Freeport-McMoRan (FCX) $47.46 down 2.87% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.40 down 2.30%

The Steels have their furnaces off (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $31.60 down 2.53% - global steel producer
POSCO (PKX) $100.56 down 1.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.52% at $1,601,902.16 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Wednesday, June 22, 2011

Gold Up, Miners Rally; Timberline Resources in Eureka



Wōdnesdæg
Morning Miners!

It is 5:45 AM. Have a hot cup of Hump Day Hoo-rah. No sign of Old Miner Woden in the break room - he plugged in the pot and left a note, "Gone to Lookout Mountain." I think our resident market bear doesn't want to be around now that the miners are back in bull mode or maybe he has something else on his mind...

Gold Up, Miners Rally

Yesterday was a spectacular day for the mining sector. The reader's Eureka Miner's Grubstake Portfolio closed up 3.7% for the day, I believe this is a record move for the year. A more positive mood about the European debt crisis during the day and a Greek vote of confidence for Greek Prime Minister George Papandreou after western markets closed might be the trick to break the miner's spring malaise. We'll check in a moment when the broader markets open.

There remain substantial hurdles ahead for Greece and the other peripheral countries of Europe facing sovereign debt issues. However, after an upcoming vote on new austerity measures, the Greeks and everyone else in Europe will start focusing on summer holiday and we hopefully can take a break from all this euro-drama. Of course, we may substitute that for our own debt issues with the upcoming vote on raising the U.S. debt ceiling in early August. Today will be dominated by the Fed's policy statement followed at 11:15 PM (PT) by Federal Reserve Chairman Ben Bernanke's press conference and question-and-answer period. Everyone will be ready to sift though his comments for more light on "somewhat slower than expected" domestic recovery. Nuts.

COMEX gold got a nice pop ahead of the Fed meeting trading presently at $1,555.5/oz, territory we haven't seen since the first market day of May. COMEX silver is feeling pretty spry too, up $0.201 at $36.580/oz. COMEX copper remains resilient above the key $4/lb level, up $0.0035 at $4.0920/lb.

The broader markets are now open and the miners remain in rally mode. The Eureka Miner's Index(EMI), after plumbing a new low for 2011 on Monday of 183.5, has just bumped above its 1-month moving average at a much healthier 252.1 (see below). If the EMI can stay above this average there may be hope for reversing the mining equity downtrend that has haunted us since late April.

Now, why did Old Miner Woden really bug out to Lookout Mountain?

Timberline Resources in Eureka


Mining Editor Adella Harding of the Elko Daily Free Press did a nice piece on Timberline Resources Corp. which announced yesterday the resumption of exploration and drilling at its South Eureka property, including their advanced-stage Lookout Mountain Project. Here is her report:

Timberline resumes drilling near Eureka (Adella Harding, Elko Daily Free Press, 6/21/2011)

The ole Colonel has added Timberline to the Miner's Corner in the column to your right. Go to their "South Eureka" page and you can read about their latest plans:

Timberline's exploration efforts are focused at its 23 square-mile South Eureka land package, one of the largest remaining undeveloped gold properties in Nevada. The South Eureka Property is located on the south end of Nevada's Battle Mountain / Eureka Trend, just four miles from Barrick Gold's two-million ounce Archimedes / Ruby Hill mine. It includes Timberline's flagship Lookout Mountain Project along with a pipeline of earlier-stage projects that feature past gold production, historic gold estimates, and/or drill-indicated gold mineralization. Timberline acquired the South Eureka property, including Lookout Mountain, in its acquisition of Staccato Gold in June 2010.

Timberline also expects to define heap-leachable gold mineralization at other project areas within the South Eureka property. Lookout Mountain lies within the 5-mile long Ratto Ridge structural zone, the western-most of three distinct mineralized structural zones at South Eureka. Areas north and south of Lookout Mountain, along with areas on the other two mineralized trends, provide the opportunity for significant additional gold discoveries.
Timberline Resources Website

Now we know what Old Miner Woden is up to. Some of you old timers may remember the old Windfall Mine operation in the early 1980s. Woden worked there and that mine in combination with Rustler, North Paroni, South Paroni, and Lookout Mountain diggings logged a total historic gold production of more than 133,000 ounces. All of those properties have perked the interest of Timberline Resources. Yee-hah!

Timberline Resources Corp. is listed on U.S. (TLR:NYSE-AMEX) and Toronto Exchanges (TBR:TSX-V). I just threw a few shares in the buckboard at $0.7949/sh. The TLR 52-week high is $1.40/sh; the low is $0.73/sh. Please do your own research, pardner. Socks below $1 can whipsaw you faster than Old Miner Woden can make tracks to new diggings.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 252.11, up from yesterday's 238.46 and above the 1-month moving average of 251.03. The EMI is down from the high of January 4th and set a new 2011 low on June 20th at 183.47. The 1-month moving average continues a troubling downtrend but the pop above the average today is encouragiing.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 81.91, up from yesterday's 81.35 and above its 1-month average of 79.25. Today's Value Adjusted Gold Price (VAGP) is $1,586.7/oz or just $31.2/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $94.24
ICE North Sea Brent crude $111.73
Spread (ICE- NYMEX) = $17.49 (Yesterday, $17.39)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $95.15
ICE North Sea Brent crude $110.98
Spread (ICE- NYMEX) = $15.83 (Yesterday, $16.23)

* NYMEX futures contracts have rolled forward, we now show August & October for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $51.44 (our new warning level, 06/20 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.07 in early trading at $94.24 (July contract, most active); Gold is up 9.1 to $1555.5 (August contract, most active); Silver is up 0.201 to $36.580 (July contract, most active); Copper is up $0.0035 at $4.0920 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $15.95; LME cash seller is $16.10, LME moly 3-month seller's contract is $16.10

Stock Market Morning Update

The DOW is down 13.85 points to 12,176.16; the S&P 500 is down 0.32 at 1,295.2

Miners are happy except for the moly miners:

Barrick (ABX) $44.67 up 1.09%
Newmont (NEM) $53.89 up 1.28%
US Gold (UXG) $6.21 up 4.90%
General Moly (Eureka Moly, LLC) (GMO) $4.52 down 0.22%
Thompson Creek (TC) $9.81 down 0.30%
Freeport-McMoRan (FCX) $49.46 up 0.45% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.02 up 0.74%

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $32.72 up 0.62% - global steel producer
POSCO (PKX) $102.15 down 0.25% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.07% at $1,673,377.82 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market